Limited-service hotels still the rage

OKLAHOMA CITY – When Jan Freitag spoke to the Oklahoma Hotel and Lodging Association Tuesday, he pointed out a development change in the industry.

“We’re not building ballrooms anymore,” he said. Freitag is the senior vice president of STR, a data analytics company that tracks hotel performance.

Freitag is the senior vice president of STR, a data analytics company that tracks hotel performance.

“There are 170,000 rooms under construction across the U.S., and two-thirds of those are limited-service,” he said. “It’s really hard to have a 400-person breakfast meeting at the breakfast bar at the Hampton Inn.”

Oklahoma City Convention and Visitors Bureau President Mike Carrier has long championed another full-service hotel in the city. Full-service hotels typically have a restaurant open daily, room service, a fitness center, and other amenities.

But full-service hotels come with a cost.

In 2014/2015 a 150-room full-service hotel would cost about $50.2 million to build, according to HVS Global Hospitality Service’s annual survey. During the same time period, construction costs ranged from $17 million to $24 million for a 150-room limited-service hotel.

Nearly two-thirds of the cost is in building and site improvements, the survey showed. The balance goes to land cost, furniture and fixtures, pre-opening expenses and working capital.

On average, a limited-service hotel room costs $145,000 to build, while a full-service room costs $334,900.

There’s been 4.8-percent demand growth in limited-service hotels nationally and a 5.6-percent growth in supply.

“That’s why we’re interested in what happens at the (MAPS 3) convention center hotel,” Carrier said, because there’s an opportunity for a full-service hotel.

Nashville, Tennessee is seeing some full-service growth with its convention center opening. An Omni Hotel has opened and a Westin Hotel will come online soon.

“I think it’s just that with the limited-service type hotels, there’s a lot more opportunity for development because the risk is a lot less,” said Bobby Bowers, STR’s senior vice president of operations.

Robert Mandelbaum, research director at CBRE Hotels, said the growth in limited-service hotels can be traced to two factors: costs of full-service hotels and consumer preference. He said banks are more conservative about lending to full-service hotel developers.

“Getting the financing to build a large full-service hotel is difficult,” he said.

High land costs in cities are driving more developers to buy a hotel and renovate it, he said.

“In these days, it’s cheaper to buy an existing hotel as opposed to building a new one,” he said. “Older inventory is being purchased and renovated.”

He said the group demand segment has lagged in its recovery since the recession. The demand for meeting space has gone with it, he said.

“When people say they want a full-service hotel, business and commercial travelers are finding alternatives in select brands,” he said. “People are OK with staying at a place for free breakfast. What people want in terms of food and beverage is not the extent of what it was.”

When those full-service hotels do come online, they are an updated version, especially if they are connected to a convention center.

Bowers said some full-service hotels are offering spa services, which helps the convention center compete in the national event market. But this isn’t the end of the full-service market, Bowers said. It’s all cyclic.

“You’ll build those (full-service) hotels when they’re needed,” he said. “I’m sure we’ll reach a saturation point with the limited-service. There will be some kind of outside event, such as an economic recession, and the supply growth will go down.”